Assad outlines contracting strategies to lower Pentagon spending

Jun. 30, 2010 - 06:00AM
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Shay Assad, Defense Department director of procurement and acquisition policy, says there should be more competition for contracts, especially for services, which account for 53 percent of Defense contract spending. (Chris Maddaloni / Staff)

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The Defense Department's new approach to acquisition will mean more competition and fixed-price contracts, greater use of other agencies' contract vehicles, and more incentives for contractors to do a good job, according to a top Defense procurement official.

Speaking to industry representatives at a Coalition for Government Procurement breakfast, Shay Assad, director of procurement and acquisition policy, offered clues to how a memo that Pentagon acquisition executive Ashton Carter issued yesterday will change the way the department does business. The document outlined plans to cut billions of dollars from the military budget by more efficiently purchasing weapons and services.

Assad said there should be more competition for contracts, especially for services, which account for 53 percent of Defense contract spending. He said the department would "reduce or eliminate" open-ended sole-source contracts, even those that have already been negotiated.

"We'll review those when they come up for options," Assad said. "We are going to examine each and every one of them to say, when can we open that contract for competition?"

If only one bid comes in on a contract, acquisition workers will be required to conduct a detailed cost analysis and negotiate the price, Assad added.

One way to foster competition would be increased use of contracts negotiated by other agencies, most notably the General Services Administration. Assad said the department has ramped up training for its contracting officers on how to use the GSA schedules. He didn't promise a tectonic shift toward buying through GSA, but said that if GSA can prove it offers a better deal, it'll get the Pentagon's business.

"If you provide value and expertise, we're going to come to you," Assad said. "We want to use tools like the GSA schedules effectively."

Defense also wants to reward contractors that effectively manage their subcontractors and reduce overhead costs. Contracting officers could allow firms that provide cost savings to take home more profit, Assad said. The Navy established a pilot program last month to reward high-performing contractors, and Assad said his office will be watching the results closely.

Assad also said Defense will "eliminate from the competition base" companies that perform poorly, but he didn't say how that would be done.

The Pentagon will also move away from time and materials contracts — in which contractors define how much time they'll need to do a job and how much it will cost — except in areas such as shipbuilding or aircraft repair.

The department prefers fixed-price contracts, Assad said, but those can be difficult to negotiate in areas such as information technology, where it's difficult to define requirements in advance. In those cases, cost-plus contracts where companies can add to their expenses as work progresses may be more appropriate, Assad acknowledged.

The Pentagon also wants to increase small-business participation in defense contracting.

"We are going to focus like a laser on improving our small-business performance," Assad said.

That could mean mandating that prime contractors delegate a certain amount of subcontracting work to small businesses, he said.

The acquisition reforms will crystallize further in four to eight weeks when Carter will produce more specific guidance on how acquisition workers should do their jobs.